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New research into the costs and funding of early education and childcare

The Department for Education (DfE) has published Early years providers cost study: 2018, which presents the findings of independent research into the costs and funding of early education and childcare in England. Frontier Economics conducted detailed cost and income data from 120 early years providers between March and July 2018.

The report builds on similar research using data collected in 2015 in order to help understand how recent policy changes and other drivers of cost have affected the delivery of early years education and childcare.

Key findings:

  • On average, 54 percent of settings’ income is free entitlement funding, 41 percent is parent-paid fees and 6 percent is from other sources.
  • Almost half (47 percent) of all income is free entitlement funding for 3- and 4-year-olds. However, childminders receive a much higher proportion of their income from parent-paid fees and a much lower proportion from free entitlement funding than other types of providers.
  • 77 percent of costs are for staff, while 13 percent are venue-related and 10 percent are for other items.
  • The mean hourly delivery cost for 3- and 4-year-olds is £3.98, but there is substantial variation in the hourly cost across settings (with a wide 95 percent confidence interval around the mean of £3.56 to £4.40 reflecting both this variation and the small sample size).
  • The hourly cost is highest for maintained nursery schools (MNS) and childminders and lowest for voluntary providers
  • Being middle-sized (as measured by the number of registered places) is associated with a higher hourly delivery cost.
  • There is some weak evidence that chain (multi-site settings) have lower costs.
  • Having children under age 2 is associated with a lower hourly delivery cost for 3- and 4-year-olds (even controlling for differences in provider type). The estimated difference between settings who have children under age 2 and settings with a youngest child aged 2 is £0.97 and the estimated difference between settings who have children under the age of 2 and settings with a youngest child aged 3 is £1.43.
  • The hourly cost rises as the proportion of children with SEND increases with a point estimate of an average £0.05 increase for each additional percentage point.
  • More opening hours each day is associated with a lower hourly cost.
  • The hourly cost is higher for settings with high average staff qualifications than for those with low or middle-level average staff qualifications.
  • The hourly cost is lower for settings with higher child-to-staff ratios: the point estimate indicates that the cost falls by an average of £0.14 for each additional child.

Responding to the findings, PACEY’s chief executive, Liz Bayram, said:

“We are relieved the long-awaited research on early years providers’ costs has finally been published by DfE. It lays bare what we have been highlighting for a long time now, that the hourly rate most local authorities pay providers to deliver early years entitlement falls far short of the actual cost incurred. With maintained nursery schools receiving a much needed funding boost in recognition of this issue, it is now time for the DfE to do the same for all providers struggling to deliver quality funded place on a shoestring.

“In fact, the research reveals that childminders have an hourly delivery cost nearly as high as that of maintained nursery schools due to their statutory ratios. However, they have not received any additional funding to reflect this reality. Low funding rates, delayed payments and the inability to delivered funded hours to related children are all leading to more and more childminders leaving the profession.

“We hope this is finally the evidence needed to ensure the next Comprehensive Spending Review delivers the sustainable funding all early years providers need to ensure their future sustainability.”